By TIOL News Service

MUMBAI, MAY 10, 2014 : THE appellant provides taxable service of erection, commissioning and installation of power stations to various Electricity Boards and is registered with the department. The contract entered into by the appellant with its customers is a composite contract including supply of goods and rendering of services.

Appellants are paying service tax on 10% of the value of the materials used in respect of the erection, commission or installation where the service is providedto the State Electricity Boards. Further, they are paying ST on 15% of the contract amount received from other customers.

After taking into consideration the gross amount received in respect of the various contracts, the CCE, Pune-III confirmed a service tax demand of Rs.6.36 croresalong with imposition of penalties and interest.

While seeking stay, the appellant had inter alia made the following submissions before the CESTAT -

+ that the Revenue had taken into considerationthe balance-sheet figures but since they were also undertaking activity of trading which is reflected in the balance sheet, the activity of trading is also held as liable to service tax.

+ the cost of material is not to be taken into consideration for the purpose of levy of service tax in view of Notification No. No.12/2003-ST or in the alternative the benefit of abatement prescribed in notification 1/2006-ST should be extended.

+ as audit was conducted in 2009 and certain demands were raised and paid, invoking extended period [2005-06 to 2009-10] in SCN dated 18.10.2010 alleging suppression is not sustainable.

+ cum-duty tax benefit has not been allowed.

The CESTAT while ordering a pre-deposit of Rs.1 crore observed on the following lines -

+ The audit was conducted in the year 2009 and the audit raised issue in respect of Goods Transport Service and the applicants paid tax as per the objection raised by the audit. In view of this prima facie the applicants have a strong case on the issue of time bar.

+ Demand for the period i.e., 2009-10 which is within the normal period of limitation comes to Rs.2,54,04,126/-. The benefit of Notification 12/2003-ST claimed by the applicant is not available, as the applicants are not fulfilling the conditions of the Notification inasmuch as applicants had not produced evidence by way of invoices under which the goods were sold to the service recipient.

+ The admitted fact is that the applicants availed credit of service tax in respect of the input service to the extent of about Rs.30 lakhs, therefore, benefit of notfn. 1/2006-ST is prima facie not available.

While reporting this Stay order 2012 2012-TIOL-1536-CESTAT-MUM we had quipped - Space… the final frontier…heading for a remand!

How true were we!

The appellant is before the Bombay High Court and submits that the Tribunal completely misread the Notification No.12/2003-ST dated 20 June 2003 by proceeding on the basis that the documentary proof of supply of materials is to be only in the form of invoices; that the appellant had before the Commissioner as well as before the Tribunal produced the returns filed under the Sales Tax Act which indicated the value of goods supplied in execution of the contracts for supply, erection and commissioning of power station; the agreement entered into by appellant with its customers indicated the quantum of goods to be supplied in the execution of the contract along with the running bills submitted to its customers were all produced on sample basis; certificate of Chartered Accountant dated 8 August 2013, is produced indicating that the service tax had been paid on labour charges incurred in various tenders/contracts at the rate of 10.30%. Inasmuch as since no further amount is payable, the appeal should be entertained on merits by the Tribunal, without insisting on any pre-deposit.

The High Court agreed with the submissions made by the appellant and further observed -

++ If the appellant is able to show from the documents i.e. contract read with other documents including its R. A. Bills (Running Account Bills) and returns filed with the Sales Tax Authorities, the value of goods sold and supplied to the satisfaction of the authorities, it would be complying with the condition provided in Notification No.12/2003-ST dated 20 June 2003.

++ We are normally loath to interfere with the discretion exercised by the Tribunal in passing orders, directing pre-deposit for the purposes of entertaining the appeal on merits. However, in this case, the Tribunal has committed a fundamental error in insisting only upon production of Invoices, as evidence of goods being sold and ignoring the contract, R. A. Bills etc. to arrive at the value of goods sold. Therefore, grave prejudice has been caused to the appellant and we are required to interfere with the impugned order.

The High Court, therefore, set aside the Tribunal order and remanded the matter to consider the stay application afresh. It was also made clear that it would be open to the Tribunal to remand the proceeding to the Commissioner of Central Excise for a fresh adjudication, if it is prima facie satisfied with the submission of the appellant on the basis of the documents produced that goods and materials have been sold and supplied in execution of the contracts entitling the appellant to the benefit of Notification No.12/2003-ST dated 20 June 2003.

The appeal was disposed of in above terms.

(See 2014-TIOL-693-HC-MUM-ST)